The Federal Reserve announced one of the most significant rollbacks of bank rules since President Trump took office with a proposal for looser capital and liquidity requirements for large U.S. lenders.
The changes would affect large U.S. lenders including U.S. Bancorp , Capital One Financial Corp. , and more than a dozen others. The largest U.S. banks, including JPMorgan Chase & Co., wouldn’t see any significant rule changes, and some in the industry thought the proposal didn’t go far enough.
The draft proposal, approved by a 3-1 vote at a Wednesday meeting of the Fed’s governing board, would divide big banks into four categories based on their size and other risk factors. Regional lenders would be either entirely released from certain capital and liquidity requirements, or see those requirements reduced. They could also, in some cases, be subject to less frequent stress tests.
The proposals received a mixed reaction from banks. While some trade groups praised it, Greg Baer—president of the Bank Policy Institute, which represents large banks—said the proposal “does not do enough to tailor regulations.” He said, for instance, the plan doesn’t include changes to the Fed’s primary stress tests for big banks or to rules affecting foreign-owned banks with U.S. footprints. Fed officials said they were planning future proposal in those areas.
The plan divided the Fed, with Trump-appointed regulators and the Fed’s lone Obama-appointed official taking opposite sides. Fed Chairman Jerome Powell said the proposal would cut the regulatory burden “while maintaining the most stringent requirements for firms that pose the greatest risks.”
Fed governor Lael Brainard dissented. The Obama appointee said the policy changes “weaken the buffers that are core to the resilience of our system” and raise “the risk that American taxpayers again will be on the hook.”
Less Regulation Needed
My "Just in Time Stimulus" headline was meant as sarcasm, in case anyone missed it.
Yet, I am all in favor of less regulation. This is what we need.
- End the Fed
- End fractional reserve lending
- End the bailouts
- End deposit insurance
- Let the free market select what is money
Failure of Regulation
All five points above are failures of regulation, not failures to regulate.
If we are to enact my plan, by all means let banks lend however the hell they want. The free market will take care of what's needed.
If banks make poor lending choices, they will fail. And that's a good thing.
As it sits, looser lending standards coupled with the current credit bubble, housing bubble, equity bubbles, and a junk bond bubble is not the best thing to do right now.
Lowering capital standards is downright idiotic in light of the need for point number two above.
Mike "Mish" Shedlock